Short-term rentals: what you should know before getting started

Updated on: September 28, 2022

Renting out your home for the short or medium term can be a good way to increase your income. But before you take the plunge, it's best to know what to expect.

There are certain constraints that could add to your administrative burden... or even nip your project in the bud. On the other hand, the benefits may outweigh any negatives. To help you make the right decision, we've put together some key facts you should know about.

Profitability

Wondering what kind of income you can expect with short-term rentals? As with long-term rentals, this depends on a number of factors. For example, the location of the unit, its size, its quality or even the time of year.

However, one thing is for sure: temporary accommodations rent for a higher price than standard rental homes. Why is this? The rental price takes into account several factors that are specific to short-term rentals. Here are the main ones.

Uncertainty

With temporary rentals, you have no guarantee that your accommodation will be rented 100% of the time. For example, tourists usually book for a few days or weeks at a time.

The risk of having an empty calendar is lower with other clienteles. In particular, disaster victims, whom insurers often have to relocate for several months.

But in any case, there is no such thing as no risk.

To compensate, you can easily increase your price by several percentage points. This is what hotels do, charging the equivalent of a week's rent per night in some cases. Conversely, the longer you rent out your unit, the lesser you would charge for it.

Housekeeping

Unlike a standard lease, you are responsible for cleaning the unit between short-term rentals. If you do it yourself, you'll want to be paid for your time. If you delegate this task to professionals, you'll have to account for the additional costs.

Amenities

Temporary accommodation should offer a range of amenities:

• furniture
• appliances
• electricity and heating
• kitchen equipment
• internet connection
• bedding and towels
• household products
• etc.

But furnishing and equipping a home comes at a cost—and your rental price should reflect that.

Insurance

The risk of theft and damage is higher with short-term rentals. This means your home insurance costs could increase if you choose that route. A higher rental price will help offset these extra costs.

Regulations

In Canada, regulations for short-term rentals vary depending on a number of factors. These include the province, the municipality, zoning, and the type of clientele (e.g., tourists), among others.

Here are some important regulations to know about.

Provincial laws

In Canada, provinces can pass laws to regulate short-term rentals, such as Quebec’s Act respecting tourist accommodation establishments.

That said, the industry is not regulated at the provincial level across the board. For example, Ontario lets cities and towns set their own rules. It’s best to check with local authorities whether any provincial laws apply to you as a host.

This law applies to you if:

• you offer accommodation to tourists in the Province of Quebec
• in return for payment
• for periods not exceeding 31 days
• on any medium

The Act defines a tourist as:

"a person who takes a leisure or business trip, or a trip to carry out remunerated work, of not less than one night nor more than one year outside the municipality where the person’s place of residence is located and who uses private or commercial accommodation services."

If you rent to other types of clients - disaster victims, for example - this law doesn't apply to you.

But if it does, you will need to get a classification certificate and an establishment number. Usually, this involves sending an application to the Corporation de l'industrie touristique du Québec (CITQ) and paying the required fee.

If you meet the criteria, the CITQ will give you a temporary attestation. It allows you to rent your accommodation while waiting for a visit from a classifier. Once your establishment is classified, you'll receive a sign that specifies its category. You have to display it publicly, usually at the main entrance.

You must also display the establishment number on any advertisement or website used to operate the establishment.

Zoning

A municipality's zoning bylaws specify how a building within its boundaries can be used. In some areas, short-term rentals are not allowed. For example, if the zoning by-law prohibits commercial activities.

Before you start renting temporarily, contact your municipality. The city clerk's office or urban planning department can tell you about any regulations.

Permits

Your municipality or borough may also ask you for a permit to rent out your accommodation on a temporary basis. Check if this is the case before taking any steps.

Authorization

If you own your building, you don't usually need any additional authorizations to start renting out your property on a short-term basis. But it's different if you are a tenant or a condo owner (divided co-ownership). Check your lease or co-ownership agreement for any restrictions on short-term or rentals. You can also contact your local landlord and tenant board to make sure you’re in the clear.

Insurance

Before you rent your home on a temporary basis, inform your insurer. They may have to increase your insurance premiums and/or change your coverage.

Tax obligations

Tax on lodging

You may need to charge a tax on lodging and remit the amount collected to the authorities at regular intervals. Check with your city or provincial government to see if this applies to you.

Note that some online tourist rental platforms can charge and remit this tax for you.

Sales taxes

You may be required to charge sales taxes and remit them to the proper authorities. Check federal and provincial regulations to see if this applies to you.

Income taxes

When the time comes to do your taxes, don't forget to declare your rental income. It is added to your other income and is taxable.

Remember to set aside a portion of the amount of each transaction. This way, you won't be caught short if you owe money to the tax authorities at the end of the year. Also keep a record of your transactions and the dates when your accommodation was rented. This will help you file your taxes.

Being informed pays off!

Offering your home for temporary rental is not a decision to be taken lightly. As we have seen, it can have financial, fiscal and/or administrative implications. But it can definitely be worth it!

Ready to get started? Join the largest community of hosts for disaster victims today.

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